Selling a Dental Practice in Canada: Share Sale vs Asset Sale and the Lifetime Capital Gains Exemption
When a Canadian dentist sells a practice that operates through a corporation, the structure of the deal can change the after-tax result by hundreds of thousands of dollars. In a share sale, the seller may be able to shelter part of the gain with the lifetime capital gains exemption, which is about $1.25 million before indexing. In an asset sale, the proceeds stay in the corporation and are usually taxed again when taken out. Buyers often prefer assets, sellers often prefer shares, and the final structure is a negotiation that needs tax and legal advice.
Key facts
- The exemption: the lifetime capital gains exemption (LCGE) is governed by section 110.6 of the Income Tax Act. It rose to $1.25 million for dispositions on or after June 25, 2024.
- 2026 figure: several Canadian accounting firms put the indexed 2026 limit at about $1,275,000. Confirm the current amount with the Canada Revenue Agency or your accountant.
- What qualifies: shares of a qualified small business corporation (QSBC), not the assets of a corporation.
- Inclusion rate: the government said in March 2025 that it would not proceed with the proposed increase to the capital gains inclusion rate, according to a law firm summary, so the 50 per cent rate applies.
- Timing: qualifying often takes planning two or more years ahead of a sale.
Who this is for
This guide is for dentists who own a practice through a corporation and are thinking about selling, associates planning to buy a practice, and advisors who work with them. If you practise as a sole proprietor, the structure and tax treatment differ, so ask your accountant how a sale would work for you.
Asset sale vs share sale
In an asset sale, the corporation sells the practice’s assets and goodwill to the buyer. The corporation receives the money, pays corporate tax on any gain, and the owner then takes funds out as salary or dividends, which are taxed again. The buyer generally prefers this structure because it allows a fresh tax basis in the equipment and avoids taking on unknown liabilities.
In a share sale, the owner sells the shares of the corporation itself. The gain is a capital gain in the owner’s hands, and if the shares qualify, the LCGE can reduce or eliminate the tax on it. The buyer takes over the corporation along with its history, contracts and any hidden obligations, so they will insist on thorough due diligence and legal protection.
| Factor | Asset sale | Share sale |
|---|---|---|
| Who sells | The corporation | The shareholder |
| Typical seller tax result | Corporate tax, then tax on extracting funds | Capital gain, possibly sheltered by the LCGE |
| Buyer’s preference | Usually preferred | Often resisted |
| Liability risk for buyer | Lower | Higher |
| Complexity | Contracts, leases and licences must be assigned | The corporation continues, but the buyer must be eligible to own it |
Provincial rules matter here. In most provinces, shares of a dental professional corporation can be held only by dentists or other permitted holders, so the pool of buyers for a share sale may be limited. Check your college’s rules and speak to a lawyer who handles dental transactions.
How the lifetime capital gains exemption works
The LCGE lets an individual claim a deduction against a taxable capital gain on the sale of qualifying shares, up to a lifetime limit. If you sell shares and realize a $1.25 million gain, 50 per cent, or $625,000, would normally be included in your income. With the exemption fully available, that taxable portion is deducted and no personal tax is due on that gain.
The limit is cumulative over your lifetime and covers qualified small business corporation shares and qualified farm or fishing property together. Amounts you have already claimed reduce what remains. The exemption can also affect other calculations, such as the alternative minimum tax, so ask your accountant to model the whole result and not just the headline figure.
What makes shares qualify
Accountants generally describe three tests for QSBC status. The details are technical, so treat this as a summary.
- The corporation test. At the time of sale, the company must be a Canadian-controlled private corporation, and substantially all of the fair market value of its assets, commonly understood as 90 per cent or more, must be used mainly in an active business carried on mainly in Canada.
- The holding-period test. The shares must not have been owned by anyone other than the seller or a related person during the 24 months before the sale.
- The 24-month asset test. Throughout those 24 months, more than 50 per cent of the corporation’s assets must have been used mainly in an active Canadian business.
Practices often build up cash or investments inside the corporation, and that can cause the tests to fail. “Purifying” the company, which means removing non-active assets before the sale, is a common planning step and takes time to do properly.
An illustrative example
The numbers below are invented for explanation. They do not describe a real practice and ignore other taxes and adjustments.
| Item | Amount (CAD) |
|---|---|
| Share sale price | $1,500,000 |
| Adjusted cost base of shares | $100,000 |
| Capital gain | $1,400,000 |
| LCGE available (assuming none previously used, $1,275,000 limit) | ($1,275,000) |
| Remaining gain | $125,000 |
| Taxable portion at a 50 per cent inclusion rate | $62,500 |
In this scenario only $62,500 would be added to the seller’s taxable income. In an asset sale of the same practice, the corporation would receive the proceeds and the seller would pay further tax when extracting them, so the outcome is usually less favourable, although the exact difference depends on the corporation’s tax position. A buyer who prefers an asset deal may also offer a different price to compensate.
Costs, risks and Canadian specifics
- Planning time. Fixing a failed QSBC test can take up to two years.
- Negotiation. If the buyer insists on assets, the seller may seek a higher price. Both sides should have advisors model the alternatives.
- Patient records. Provincial regulators set rules for the custody and transfer of patient records and for notifying patients when a practice changes hands.
- Restrictive covenants. Non-competition and non-solicitation terms must be reasonable in scope, time and geography.
- Holdbacks and earn-outs. A portion of the price may depend on patient retention. Define the measurement carefully.
- Lease and licences. The landlord may need to consent, and some permits and agreements may not transfer.
- Public plan billing. Confirm that the buyer can bill public plans such as the Canadian Dental Care Plan under the rules in force at closing.
A seller’s checklist
- Meet an accountant and a dental transactions lawyer two to three years before you want to sell.
- Get an independent valuation. Our guide to valuing a practice explains the methods.
- Test whether your shares are likely to qualify as QSBC shares.
- Review the balance sheet for non-active assets and discuss purification.
- Clean up financial statements, leases, staff agreements and compliance records.
- Decide the transition period you are willing to work.
- Ask your advisors to model both an asset sale and a share sale, after tax.
- Only then go to market or accept a letter of intent.
FAQ
Is the lifetime capital gains exemption available on an asset sale?
No. It applies to the sale of qualifying shares, not to a corporation selling its assets.
Can a dentist always sell shares?
Not always. Provincial rules usually limit who can own shares of a professional corporation, and the buyer may prefer assets for tax and risk reasons.
How much is the exemption in 2026?
The base is $1.25 million, and accounting firms report an indexed 2026 limit of about $1,275,000. Confirm the current figure.
Did the capital gains inclusion rate change?
The government announced in March 2025 that it would not proceed with the proposed increase, so the 50 per cent inclusion rate remains.
When should I start planning?
Two to three years before a sale is a sensible target, because the QSBC tests look back 24 months.
Disclaimer and next step
This article is general information. It is not tax, financial or legal advice. Tax rules and limits change, and every practice is different. Speak to a qualified accountant and a lawyer who handles dental practice transactions before you act.
Next step: ask your accountant to test your corporation against the QSBC conditions and to model an asset sale and a share sale side by side.
Sources: O’Sullivan Estate Lawyers, March 2026, Shajani CPA and Wealthsimple Tax on the 2026 exemption. Last updated: October 7, 2026.